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Income Tax Appellate Tribunal, BANGALORE BENCHES “A”, BANGALORE
Before: Shri George George K, JM & Ms.Padmavathy S, AM
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “A”, BANGALORE Before Shri George George K, JM & Ms.Padmavathy S, AM ITA No.880/Bang/2017 : Asst.Year 2012-2013 Smt.Munilakshamamma The Income Tax Officer #23, CKC Garden, Lalbagh Road Ward 7(2)(2) v. Bengaluru. Bengaluru – 560 005. PAN : ADVPM6870E. (Appellant) (Respondent) Appellant by : Sri.T.Srinivas Rao, CA Respondent by : Sri.Sankar Ganesh K, JCIT-DR Date of Pronouncement : 05.07.2022 Date of Hearing : 14.06.2022 O R D E R Per George George K, JM : This appeal at the instance of the assessee is directed against the order of the CIT(A) dated 24.01.2017. The relevant assessment year is 2012-2013.
The solitary issue argued by the learned AR is whether the assessee is liable for capital gains for Joint Development Agreement (JDA) entered between the assessee and M/s.Ramky Infrastructure Limited. Several grounds are raised. The assessee has also raised two additional grounds vide application dated 31.08.2020. All the grounds, except additional ground No.2, pertain to the issue that impugned land was agricultural land and not a capital asst u/s 2(14) of the I.T.Act. The assessee did not press these grounds, hence, grounds No. (a) to (h) are dismissed. The assessee did not also
2 ITA No.880/Bang/2017. Smt.Munilakshamamma. press ground No.1 in additional ground. The only surviving ground is additional ground No.2, which reads as follows:-
“2. That in the facts and circumstances in the case, following the refusal of the consent by the Hon’ble National Green Tribunal as well as the Karnataka State Pollution Control Board vide orders dated 04.05.2016 and 05.10.2016, respectively, the appellant / the developer M/s.Ramky Estate Farms Limited were legally restrained from implementing the proposed project, resulting in the entire project falling through and consequently provisions of section 45 were not attracted to the issue under agitation, following the law laid down by Hon’ble Supreme Court in the case of CIT vs. Balbir Singh Maini.”
The brief facts of the case are as follows: The assessee is an individual. There was a search and seizure operation u/s 132 of the I.T.Act in the premises of M/s.Ramky Infrastructure Limited Group on 07.02.2013. During the course of search and seizure operation, a Joint Development Agreement-cum-Power of Attorney dated 23.06.2011 executed by the assessee and M/s.Ramky Infrastructure Limited was found and seized. As per the JDA executed by the assessee with the builder/developer, land measuring 7 acres 25 guntas owned by her was allowed to be developed into a residential-cum-commercial space by the builder. The JDA was a registered document. As per the terms of this agreement, the assessee was to get 35% super built up area in the form of apartment and commercial space along with 35% of car parking and other benefits in the constructed area. The assessee also received interest free refundable deposit amounting to Rs.3,90,63,000. The assessee was show
3 ITA No.880/Bang/2017. Smt.Munilakshamamma. caused why the JDA transaction has not resulted in transfer of property and attracts capital gains tax. In response to the show cause notice, the assessee filed letter dated 26.03.2015. The primary contention of the assessee was that the impugned land was an agricultural land not falling with the definition of capital assets u/s 2(14) of the I.T.Act. Further, it was submitted that on reading the JDA-cum-Power of Attorney clearly indicates that what was handed over by the assessee to the builder is only the permissive possession to develop the area and the legal possession was never handed over. It was further contended that mere receipt of refundable interest free deposit cannot be termed as receipt of consideration and consequently section 53A of the Transfer of Property Act, 1882 does not have application to the facts of this case. As a result, it was submitted that there is no transfer as contemplated u/s 2(47)(v) of the I.T.Act.
The Assessing Officer, however, rejected the contentions of the assessee and computed long term capital gains amounting to Rs.1,67,71,335. The relevant portion of the calculation made by the A.O. reads as follows:-
Consideration of the 65% undivided share of the 1,98,25,000 land surrendered (i.e. 65% of the market value of the surrendered land) 65% of 3,05,00,000 = 1,98,25,000 Indexed cost of acquisition of 65% of undivided part of 5,98,315 the surrendered land i.e. 65% of 9,20,485 = 5,98,315 Indexed cost of the improvements carried out by the 24,55,350 assessee on the surrendered land limited to 65% i.e. in proportionate to the surrendered land 65% of Rs.37,77,464/- = 24,55,350/- Long Term Capital Gains 1,67,71,335 1,98,25,000 – (5,98,315 + 24,55,350) = 1,67,71,335
4 ITA No.880/Bang/2017. Smt.Munilakshamamma.
Aggrieved, the assessee filed appeal before the first appellate authority. The CIT(A) held that there is no dispute the JDA was executed on 26.03.2011 relevant the assessment year 2012-2013. It was further stated that there is transfer in terms of section 2(47) of the I.T.Act on execution of JDA when the builder will provide the constructed portion to the assessee. It was further held that as per the terms of the agreement, the assessee agreed to transfer the undivided share of land and the assessee will be delivered by the builder 35% of the super built-up area in the form of an apartment, commercial space and other benefits in the constructed area. The CIT(A) after referring the judgment of the Hon’ble Karnataka High Court in the case of CIT v. Dr.T.K.Dayalu reported in 202 taxmann.com 531 held that the assessee is liable for capital gains for the relevant assessment year. Further, it was held that the impugned land falls within the definition of urban land and irrespective whether it is agricultural land or not would come within the definition of capital assets u/s 2(14) of the I.T.Act.
Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal. The assessee has filed a paper book comprising of 400 pages enclosing therein copy of the development agreement dated 23.06.2011, copy of the written submissions submitted before the Income Tax Authorities, copy of the refusal order dated 05.10.2016 from the Karnataka State Pollution Control Board, copy of the
5 ITA No.880/Bang/2017. Smt.Munilakshamamma. order of National green Tribunal dated 04.05.2016 declining clearance for establishment of proposed project, the case laws relied on, etc. The learned AR by referring to clause (i) of the JDA, submitted that the builder / developer was only given permission to develop the property. The learned AR reiterated that the legal possession of the property was never handed over to the developer. Therefore, there is no transfer as per section 2(47) of the I.T.Act read with section 53A of the Transfer of Property Act. Further the learned AR by placing reliance on the judgment of the Hon’ble Apex Court in the case of CIT v. Balbir Singh Maini reported in (2017) 398 ITR 531 (SC) submitted that the project could not take place for the reason of refusal of consent by the Hon’ble National Green Tribunal as well as the Karnataka State Pollution Control Board (orders dated 04.05.2016 and 05.10.2016, respectively).
The learned Departmental Representative strongly supported the orders of the Income Tax Authorities.
We have heard rival submissions and perused the material on record. The solitary issue for our consideration is whether capital gains arises for the relevant assessment year in respect of JDA entered between the assessee and M/s.Ramky Infrastructure Limited. Copy of the JDA is placed on record from pages 189 to 240 of the paper book. On perusal of various clauses of JDA, it is clear that the builder / developer is given only permissive possession and not a legal
6 ITA No.880/Bang/2017. Smt.Munilakshamamma. possession as contemplated within the meaning of section 53A of the Transfer of Property Act. The relevant clause, namely, clause (i) reads as follows:-
“i. That the Owner hereby create in favour of the Developer, its agents, employees, labourers, contractors, consultants and the other persons as may from time to time be deputed by the latter, license to have ingress into, egress from and regress into the Schedule Property herein for the purpose of developing the same as stated in these presents.”
Further, as per clause (e), the owner of the property or his authorized agent has right to enter into the construction site / scheduled property to inspect the construction work carried out by the developer. On identical facts, the Bangalore Bench of the Tribunal in the following cases has held that there is no transfer of property, consequently, no capital gains can be computed for the year in which year the JDA is executed:-
(i) M/s.Anugraha Shelters (P) Ltd. v. DCIT [ITA No.2314/Bang/2016 (order dated 22.11.2021)] (ii) Dr.Krishna Prasad Mikkilineni v. DCIT [ITA No.929/Bang/2018 (order dated 31.01.2022)] (iii) Smt.Lakshmi Swarupa v. ITO [ITA No.2278/Bang/2018 (order dated 12.10.2018)] 10. The relevant finding of the Bangalore Bench of the Tribunal in the case of Smt.Lakshmi Swarupa v. ITO (supra) reads as follows:-
“4. Clause 1 of the JDA provides as follows:
7 ITA No.880/Bang/2017. Smt.Munilakshamamma. "1) PERMISSION FOR DEVELOPMENT: 1.1) The Owner is in possession and enjoyment of the Schedule Property. The Owner hereby authorize the Promoter for the purpose of development, to enter upon the Schedule Property and develop the same, however the authority so granted does not in any manner be construed as delivery of possession by the Owner in part performance of this agreement under Section 53-A of the Transfer of Property Act or under Section 2(47)(iv) of the Income Tax Act, 1961. 1.2) The Owner hereby agrees not to interfere or interrupt in the course of construction and development of the Schedule Property and/or commit any act or omission having the effect of delaying or stopping the work that has to be done under this Agreement. However, the Owner shall always be entitled to inspect the progress of the work and type of work which is being done on the Schedule Property." …………..
I have carefully considered the rival submissions. Sec.45 of the Act lays down that profits and gains arising out of transfer of capital asset effected in the previous year shall be chargeable to income tax under the head "capital gains" and shall be deemed to be the income of the previous year in which the transfer took place. It is thus clear that there should be transfer during the previous year to attract charge to tax on capital gain. Sec.2(47) of the Act defines "Transfer" for the purpose of the Act. It reads thus: "Sec.2 (47) "transfer", in relation to a capital asset, includes,-- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in trade of a business carried on by him, such conversion or treatment ; or (iva) the maturity or redemption of a zero coupon bond; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other
8 ITA No.880/Bang/2017. Smt.Munilakshamamma. manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation [1]: For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA;" 10. The clause that was invoked by the revenue authorities in the case of the Assessee is Sec.2(47)(v) of the Act. Under the general law, transfer of immovable property of the value of rupees one hundred and upwards can take place only by a registered deed. If no registered deed is executed in respect of such property, legal title or ownership is not effectively conveyed to the transferee although transferee might have paid entire consideration and/or obtained possession from the transferor in pursuance of contract of sale. "Transfer" in section 2(47) also envisaged execution of registered deed in such circumstances. Capital gains become liable to be charged to tax only if they arise as a result of "transfer" of capital asset and the date on which they arise is date of "transfer". If as a result of mutual arrangement by parties or otherwise, no registered deed is executed even after transaction is completed by delivery of possession and receipt of consideration, capital gains tax would escape assessment altogether or if such execution of registered sale-deed is postponed, the capital gains tax would also be postponed. In several cases it suited the parties to complete such transactions without execution of registered deed and thereby evade payment of tax on capital gains. It is in order to plug this loophole that cl. (v) was inserted in section 2(47) to lay down that transfer would include any transaction involving allowing of possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of Transfer of Property Act. Thus, the Provisions of Sec.53A of the Transfer of Property Act, 1882 stand incorporated into the provisions of the Income Tax Act, 1961. If that be so then the Tax authorities for coming to a conclusion that provisions of Sec.53A of the Transfer of Property Act, 1882 are attracted to a particular transaction have to come to a conclusion the transaction/agreement in question is such that the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee, has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract. 11. In the present case, the clause in the JDA regarding possession clearly states that what is given is not possession contemplated u/s.53A of the Transfer of Property Act and that it is merely a license to enter the property for the purpose of carrying out development. Further, the subsequent MOU dated 16.8.2006 and delivery of legal possession on 22.4.2006 clearly shows that there was no transfer within the meaning of Sec.2(47)(v) of the Act during the previous year relevant to AY 2006-07.
9 ITA No.880/Bang/2017. Smt.Munilakshamamma. Therefore, invocation of the provisions of Sec.2(47)(v) in the facts and circumstances of the present case on the basis of clause-1 of the JDA, in my view was not proper. The possession in the present is traced to the joint development agreement which is in the nature of permissive possession and not possession in part performance of agreement for sale. In the present case, there is no document by which the revenue can come to the conclusion that there was delivery of possession. The mere fact that development of the property cannot be done without possession cannot be the basis to come to a conclusion that possession was delivered in part performance of the agreement for sale in the manner laid down in Sec.53A of the Transfer of Property Act. Such possession as I have already held is on behalf of the Assessee and not in the independent capacity of purchaser of the property. 12. For the reasons given above, I hold that there was no transfer during the previous year relevant to AY 2006-07. Therefore, capital gain on transfer of the property cannot be assessed in AY 2006-07. The assessment of capital gain in AY 2006-07 is therefore held to be bad and deleted.” 13. In the instant case also, we have noticed that the assessee has given permissive possession and not “legal possession” as contemplated within the meaning of sec.53A of the Transfer of Property Act. Hence we hold that the provisions of sec.53A of the Transfer of Property Act are not applicable to the impugned Joint Development Agreement. In this view of the matter, the provisions of sec.2(47)(v) of the Act are also not applicable. Hence the tax authorities are not justified in invoking the above said provision and consequently, the capital gains assessed in the hands of the assessee is liable to be deleted.” 11. In the instant case, as mentioned earlier, in view of the various clauses in the JDA, it is clear that the assessee has given only a permissive possession and not the legal possession as contemplated within the meaning of section 53A of the Transfer of Property Act. Hence, we are of the view that the provisions of section 53A of the Transfer of Property Act are not applicable to the impugned JDA. In view of the matter, the provision of section 2(47)(vii) of the I.T.Act are also not applicable during the relevant financial year.
The judgment of the Hon’ble Karnataka High Court in the case of Dr.T.K.Dayalu (supra) relied on by the CIT(A) is
10 ITA No.880/Bang/2017. Smt.Munilakshamamma. distinguishable on facts. In the instant case, the assessee has neither received any non-refundable deposit nor has delivered the possession of the land to the developer, except for granting license to have ingress and egress into the land proposed to be developed, and accordingly, there is no transfer as defined u/s 2(47) of the I.T.Act.
Moreover, the implementation of the proposed project was legally restrained following the refusal of consent by the Hon’ble National Green Tribunal as well as the Karnataka State Pollution Control Board orders dated 04.05.2010 and 05.10.2016, respectively. To revive the abandoned project, the assessee and the developer had entered into an amended relinquishment agreement with Bangalore Development Authority vide agreement dated 09.05.2019 in order to comply with the directions of the Hon’ble National Green Tribunal. As per the said agreement, the assessee surrendered the total area of 2.35 acres out of total area of 7.25 acres of land to be utilized for the proposed project. Thus, reducing the available area for the proposed project to only 4.30 acres as against 7.25 acres as originally envisaged. The assessee obtained revised sanction plan from the Bangalore Development Authority vide letter dated 11.11.2019 and a fresh JDA agreement was entered between the developer and the assessee vide agreement dated 27.11.2019. Therefore, following the dictum laid down by the Hon’ble Apex Court in the case of CIT v. Balbir Singh Naini (supra), we hold that the provisions of section 45 were not
11 ITA No.880/Bang/2017. Smt.Munilakshamamma. attracted for the relevant assessment year. It is ordered accordingly.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced on this 05th day of July, 2022.
Sd/- Sd/- (Padmavathy S) (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore; Dated : 05th July, 2022. Devadas G*
Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT(A)-7, Bangalore. 4. The CIT-7 , Bangalore. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore